In the late 1990s, heated debate broke out over what had previously been seen as a rather abstruse technical concept, the use of “purchasing power parity” (PPP) measures, rather than exchange rates, to compare income levels in different countries. The reason for this debate was the publication in the United Nations Development Programme’s (UNDP) Human Development Report of data showing that inequality in global incomes, adjusted using exchange rates, had increased since 1980. Critics of this approach pointed out that exactly the opposite conclusion could be obtained using more sophisticated measures based on the concept of PPP.

The reason for the intensity of the debate and the interest it generated was linked to the rise to prominence of the concept of “globalization” as a way of describing changes in the international economy that had been evident since the 1970s—most notably the growth in international trade in goods and services relative to world output, and the more spectacular expansion in short-term and long-term international capital flows. Critics of globalization argued that it benefited only the rich, and particularly the increasingly conspicuous participants in the global financial markets, variously referred to as “the masters of the universe” and “the electronic herd”. UNDP finding seemed to confirm the views of these critics, while opposing arguments were consciously directed at refuting these views.

In this paper, John Quiggin describes the changing nature of the global trade and financial system, putting the recent debate about globalization in a broader context and in a longer historical perspective. He describes the changes in the volume and direction of flows of goods, services, capital and income. Quiggin also addresses the technical issues surrounding international comparisons of income and consumption, and reviews the debate over changes in global income inequality.

A key conclusion is that no unambiguous conclusion can be reached on such broad questions as “Has global inequality increased?” and “Does globalization increase inequality?” Rather, according to Quiggin, it is necessary to address issues in their context, without relying on the appealing, though specious, simplicity of notions such as globalization.